Last week's budget had precious little to do with Britain's economic problems. George Osborne, whom I continue to regard as the most dangerous chancellor I have known – and there has been plenty of competition – made his policy bed in 2010. Unfortunately, it is the rest of the country that has to lie in it.

By comparing our budgetary problems to those of Greece, Osborne demonstrated from the start that he had little perspective or judgment. Sadly, he was egged on in his austerity strategy by the Bank of England, which seemed to get into an unnecessary panic about a nonexistent funding crisis.

The key strategic error made by Osborne was to absorb only one of the three great lessons of the decade to which the current financial crisis (we still have one) is often compared, namely the 1930s. The lesson that was undoubtedly learned is that it is perverse to react to a banking crisis by cutting the flow of money or credit: this was something that both Keynes and Friedman agreed on.

Osborne has wilfully ignored the second great lesson of the 1930s, namely that fiscal contraction is not an efficacious way of emerging from a financial crisis. As for the third lesson, namely the contribution made to eventual recovery in the 1930s by a huge programme of housebuilding and infrastructure projects, the approach of this government has been, to use a word popular among schoolmasters in the old days, "scatterbrained".

Although the Office for Budget Responsibility envisages quite a marked recovery in business investment from 2013, so far the positive impact of the austerity regime on new investment has been negligible, while central government investment, far from filling the gap in the private sector, fell 13% in real terms last year, and is budgeted to fall a further 5% this year and 3.6% in 2013.

Housing was neglected by both the Thatcher/Major and the Blair/Brown governments. In a new collection of essays, The Red Book, published by Searching Finance, Eoin Clarke notes that, so far from offering a 1930s-style route out of recession, "the number of net dwellings added to the UK housing stock is at a 10-year low. This shows that the problem has worsened under the current Tory government".

There is much talk of "rebalancing" towards investment and exports; there is a welcome rediscovery of the importance in a country the size of ours of manufacturing. But, as the business secretary, Vince Cable, complained in the runup to the budget, there is no plan for growth in circumstances when the economy is taking longer to emerge from depression than it did in the 1930s.

Instead, there is vapid talk of tax incentives. I am sure I was not the only listener to be struck by a discrepancy between the chancellor's claim on the Today programme that reducing the 50p tax rate had induced GlaxoSmithKline to create 1,000 jobs in the UK and what GSK's chief executive, Sir Andrew Witty, had to say on the subject. His careful explanation was that there were several factors involved, not least the new patent regime in this country (begun under Labour) and the way inflation in emerging economies is eroding their comparative advantage as a location for investment. He pointedly did not refer to the 50p tax decision.

Which brings us inescapably to that controversial issue that, in the absence of any serious economic content in the speech, dominated, along with the so-called "granny tax", immediate post-budget discussion.

There is a lot of mythology attached to taxation. Certainly, a top rate of 83% in the 1970s – and 98% for investment income – was absurdly high and encouraged avoidance. Sir Geoffrey Howe, in 1979, reduced the top rate to 60%. But even the Thatcherite Conservatives had the sensitivity to conclude that they could not do that without doing something for the others, so the standard rate was also reduced, from 33% to 30%. To finance this, they almost doubled VAT – from 8% to 15%, thereby not quite reneging on a pre-election promise not to double VAT.

Did these dramatic cuts in the basic and top rates of tax produce an economic recovery? No: they were followed by what at that stage was the worst recession since the 1930s. But I distinctly remember that, once the cuts had been introduced, it was hoped that there would be less tax avoidance, and a diminution of the practice of offering "perks" in compensation for high tax rates. And was there? Not a bit of it.

Then, some years later, came my old friend Nigel Lawson's 1988 budget, in which the number of different rates was reduced, and we entered the era of simplification, with two rates for income tax – a basic rate of 25% and a top rate of 40%. Did this lead to the end of unsavoury practices to get around these much lower rates? Again, not a bit of it.

It was even argued that such tax cuts were self-financing – indeed, that they led to an increase in revenue. This was not apparent from the official documents accompanying that budget, which conceded that that there was a considerable budgetary cost of some £6bn per annum.

Now, one of the more outrageous aspects of the current controversy is the glib way in which figures for the 50p yield – ranging from zero to £7bn, with £2bn being common – are said to be negligible. In so far as the yield has been less than originally forecast, accountants have been falling over themselves to tell the press that sensible "tax planning" meant that many people have, one way or another, avoided paying the full 50%.

The insensitivity of announcing the cut in the 50p rate at a time when the policy for the poor amounts to planned penury hardly needs elaboration. But the way the chancellor's acolytes have been saying things like "it only brings in £2bn" is breathtaking. One only has to think of the extent of public services that are being cut back to raise such a sum.

The chancellor's distorted logic takes the biscuit when we are told that as a quid pro quo for dropping the 50p rate, there will be a crackdown on tax avoidance. The crackdown should take place over the avoidance of the 50p!

The government's pre-Keynesian contraction is already taking risks with the social fabric of this country. With his flouting of even mainstream public opinion over the 50p rate, the chancellor is almost deliberately encouraging social discontent – for no good economic reason.